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Claiming More Clout:  A statistical portrait of the corporate development officer, circa 2003

Claiming more clout

A statistical portrait of the corporate development officer, circa 2003

Corporate Dealmaker, A publication of The Deal LLC.,
Winter 2003
By Diane C. Harris

The title of “chief executive officer” describes an obvious spot in the corporate hierarchy.  Other top corporate titles – head of human resources, for example, or director of marketing, or chief information officer – denote positions almost as easy to recognize.

Corporate development officers, by contrast, can be a little harder to peg.  Corporate development departments, those small but powerful groups responsible for executing a company’s external growth strategies, have existed for decades at many large companies.  But the sensitive nature of their mission has often meant a comparatively low profile for the men and women who lead them.  And even more than other top executives, corporate development officers have jobs shaped by their industries, and by the culture and history of their companies.  Also, the jobs change over time, as corporate fortunes – and M&A activity – rise and fall.

Still, it is possible to bring the corporate development leader into sharper focus.  Hypotenuse Enterprises, Inc. has surveyed CD officers (or CDO’s) at the largest companies since 1993.  We investigate best practices and compensation trends, among other things.  Based on our latest surveys of Fortune 1,000 companies, we can offer a statistical sketch of the CDO, and some insight into how the specialty is evolving.

What does our sketch reveal?  Several telling details, from slightly higher compensation levels to more practical perks to progress in improving post-deal integration and other processes.  But the most salient finding is this:  Although corporate development staffing levels have fallen in recent years, requiring corporate development leaders to do more with less, there is significant evidence that CDO’s are gaining in prominence and clout at many companies.

Start with reporting and other relationships.  Since our 1998 survey, the percentage of CDO’s reporting to the chairman level has nearly doubled, from 14% to 27%.  The proportion serving on a management or operating committee, meanwhile, has grown from 37% to 43%.  About 77% of responding CDO’s say they serve as sounding boards for their CEOs, up from 72% in 1998.  Over the same period, the percentage of CDO’s becoming personally subject to Securities and Exchange Commission reporting requirements has increased from 35% to 43%.  And 70% say they have responsibility for their company’s strategic planning activities, up from 58% in 1998.

CDO’s are also spending more time with company directors:  They’re reporting at 38% of their companies’ board meetings, compared with 30% in 1998.  At the same time, they are raising their profile in the broader business world.  In the current survey, 60% say they speak publicly outside their own companies, up from 44% in 1998.

The reasons for the increase in CDO clout can’t be stated so precisely, of course.  But the evidence we gather in our consulting practice suggests two main trends at work:  the ongoing importance of dealmaking to corporate growth; and a heightened awareness of regulatory and governance issues, reaching up to the boardroom level.

Turning to compensation, we find that all these indicators of clout are closely correlated with higher pay.  No surprise there.  It also makes sense that a company employing one of the highest-paid CDO’s is likely to fit a certain profile:  a Fortune 300 global organization that considers itself technologically sophisticated and has achieved double-digit earnings-per-share growth for the previous few years.

Saying these things correlate with higher pay doesn’t mean they determine it, however.  We still find the CDO’s paycheck calculated more like that of an operating unit head than that of a corporate staff member.  The emphasis is on results.  And the data show no result is more important than getting successful deals done.

The higher-paid CDO’s have completed more than 20 deals over their careers, a category that includes 45% of our respondents.  Typically, these are executives whose careers span 20 years or more and include five-plus years in corporate development.  They report an average salary of $251,000 and an average bonus in the prior year of $135,000, for a total cash compensation of $386,000.  CDO’s with fewer than 20 deals to their credit, by contrast, reported $213,000 in total cash compensation.

The uppermost stratum of our sample is extremely well rewarded.  The top 20% average $537,000 a year in total cash compensation, and the top 10% average $650,000 a year.  (Note that the data here exclude stock option grants, a diminishing factor in compensation but still relevant for 73% of respondents.  The value of such grants is, of course, difficult to quantify, as companies struggling to report on options know.)

On to perks.  Ability to use the company plane without approval is up, from 18% of respondents to 33% in the most recent survey.  Company-paid country club memberships, on the other hand, are down, from 28% to 10%.  Providing CDO’s with a company car is likewise on the decline.  The most common perks?  Mobile phones, personal digital assistants, physical exams, executive education tuition, severance plans, financial planning and sports and theater tickets.  One-fourth of respondents report that some perks are grossed up for tax purposes; 37% have golden parachutes.  All the respondents report that their companies pay a monthly mobile-phone bill.  Infrequently reported perks include personal legal services, home security systems or bodyguards and use of company vacation facilities.

But back to business.  Where are CDO’s concentrating their efforts?  A large majority, 77%, say they are working to transfer skills to operating units via coaching and in-house consulting arrangements.  A great many apply best practices in various areas.  For example, 66% say they are the primary overseer and coordinator of the due diligence team; 94% require an operating champion to support deals at least sometimes; and 33% require one always.

Finally, the CDO’s report that post-deal integration is starting much earlier, with many companies presenting commitment forecasts to the board of directors when seeking approval of the deal and 75% starting integration while the first contract is being drafted.

In a world where boards are learning to ask for integration commitments before they approve transactions, the clout of the CDO is likely to keep growing.  CD

Hypotenuse Enterprises, Inc. has been tracking corporate development compensation among the Fortune 1000 since 1997 and benchmarking corporate development best practices since 1993.  All companies in the Fortune 1000 are contacted, and the response rate among corporate development department heads has been 3% to 5%, yielding statistically significant results.  The surveys mentioned in this article were conducted in 2002 and published in 2003.

Diane C. Harris was corporate development officer at Bausch & Lomb Inc. for 14 years, and she continues to consult with many CDO’s in the Fortune 500 as president of Hypotenuse Enterprises, Inc.

 


 

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